Apparently this is to reduce “customer confusion” which killed off sales of its first-generation Surface RT model. Apparently customers thought that the expensive tablet could run Windows. That particular fiasco cost Microsoft $900 million in fiscal Q4 2013. Removing the "RT" will supposedly help alleviate that confusion even though Surface 2 and Surface Pro 2 use two different architectures.

The new Surface 2 will feature a 10.6 inch ClearType 5-point screen with a 1920 x 1080 resolution, powered by Nvidia's Tegra 4 SoC, 2 GB of RAM and Windows RT 8.1. Other features will include a 3.5MP camera on the front, a 5MP camera on the back, an SD card reader, Wireless N and Bluetooth connectivity, HDMI output, 32 GB or 64 GB of internal storage, and more.

The problem for Redmond is that customers might even be more confused if they try to run an ARM version of the tablet and still can’t run favorite x86-based desktop apps.

While it has already dropped the price of Surface RT and Pro tablets in some regions, Microsoft has now decided to drop prices on Surface RT bundles and the Touch Cover as well as to make Surface price cuts permanent in all regions.

According to a report from ZDNet, Microsoft thinks that the customer response to recent Surface pricing and keyboard-cover promotions has been good and has decided to launch Surface Pro, Touch Cover and Surface RT bundles at even more affordable prices starting as of August 29th. The price cuts will be available all around the globe.

The Surface Pro will now have a permanant starting price of US $799 while the Surface RT will start from US $399. Even the Touch Cover got its much needed price cut from rather insane US $119 down to a decidedly less insane US $79.

Earlier this month Microsoft took a huge $900 million write-down on Surface RT inventory and a couple of days ago CEO Steve Ballmer confirmed what we all knew – Microsoft simply built way too many Surface tablets.

It gets worse, much worse.

In its annual report to the US Securities and Exchange commission Microsoft reported total surface revenue for fiscal 2013 of just $853 million, reports The Register. Redmond’s fiscal year ended June 30.

That practically means it ended the year with more tablets in inventory than it managed to sell. Furthermore the $853 million includes sales of the Surface Pro. We can only guesstimate the actual unit sales, but given the Surface RT and Pro pricing, it turns out we are looking at less than three million units.

Microsoft’s Windows RT operating system may be circling the drain, but it still enjoys support from some industry players, including Qualcomm and Nvidia. But then again it would, wouldn’t it – as both companies peddle ARM tablet chips.

Speaking in an interview with Computerworld, Rene Haas, vice president of computing products at Nvidia, said Nvidia’s commitment to Surface RT and Windows RT remains at a high level.

"Surface RT is the very beginning of a long process and it's the first shot in a changing landscape," Haas said. "Microsoft is moving the entire Windows platform to something really mobile."

However, the market doesn’t appear to be liking Windows RT, or Surface RT for that matter. In fact, Microsoft’s latest earnings report reveals that the company was forced to into a $900 million write-down caused by poor Surface RT sales.

Although Haas is still optimistic and seems to genuinely believe in the Surface RT, most analysts don’t share his opinion. Analyst Jack Gold said Nvidia is simply blowing smoke and does not want to spook the market and say what everyone already knows – RT sucketh big time.

"RT is dying over night," he said. "RT is going to die a slow death."

Gold said he doesn’t believe any tablet vendor will come up with future Windows RT devices, and on the same day he gave the interview Lenovo decided to drop the Yoga 11 from its web shop.

A few days ago we have reported about Microsoft’s Surface RT price drop and we have a few updates on availability. The tablet is now available now at Staples for $349 for the 32GB model and $449 for 64GB model.

We are happy to report that readers in EU can order one for as low as €329 at several addresses. A Surface RT with touch cover will set you back €429, exactly the same as Surface with 64GB of memory without a touch cover. The top of the food chain is Surface with 64GB and a touch cover that will set you down €529. You can find them listed here and here.

The good thing that Surface is getting Windows 8.1, which might make it at least a tad more attractive. As part of the Windows 8.1 update Surface users will get Outlook 2013 RT, something that many people requested as a top missing feature as well as a few other makeovers that you will see on both RT and normal version of Windows 8.1 update. We are not sure if it gets a start button.

Surface is definitely not a direct competitor to Apple’s iPad but it is doing more for a productive business folks who are used to Windows look and feel. The price slash definitely makes surface more attractive but with bushel of other tablets in the market, especially the ones based on Android, it still won't be an easy sell.

The lack of applications for Windows RT was the main obstacle, but with Windows 8.1 this thing might change for the better. We suspect that normal Windows applications simply won't run even on Windows 8.1 for surface due to architecture incompatibility.

Let’s face it, Microsoft hasn’t had much luck with its Surface line of tablets, be it the ARM powered RT or x86 based Pro version.

Its fortunes probably won't change anytime soon, but over the next few months Microsoft is expected to refresh its tablet line-up and we are already hearing the first juicy rumours, i.e. talk of an LTE enabled RT version powered by Qualcomm’s beefy Snapdragon 800.

However, small tablets are doing exceptionally well and this trend has not gone unnoticed at Redmond. Topology analyst Maxwell Chang believes Microsoft will roll out a smaller, cheaper Surface tablet in the fourth quarter of 2013, Focus Taiwan reports.

The so-called Surface mini will be based on an Intel Atom processor and it should cost $299. It is said to feature a 7.5- to 8-inch display, no word on resolution though.

"Microsoft is likely to aim at taking on the iPad mini because it knows it is hard to compete with Android tablets in terms of price," Chang said.

Judging by the CPU, the Surface mini will be a Windows 8.1 affair, since Microsoft has apparently already tapped Qualcomm for next generation Surface RT chips.

Total shipments of the Surface RT to the channel amounted to about 1.25 million units since launch, but sales were significantly lower. IHS iSuppli analyst Rhoda Alexander says just 55 to 60 percent of the devices were actually sold. This means Redmond managed to sell between 680,000 and 750,000 tablets since launch.

Rhoda claims the low “sales out” percentage is nothing unusually when it comes to newly introduced Android devices. However, Apple’s sales out figures are a lot better, as it usually manages over 90 percent.

What’s more, Alexander said she sees little evidence of Surface RT production in Q1, which means Microsoft is still trying to sell off inventory accumulated last year. Return rates are high, too. Alexander said there is a steep learning curve involved with Windows tablets and many consumers simply can’t be bothered.

Another problem for Microsoft is the lack of interest from other device makers and Windows RT devices are still few and far between.

As usual, Redmond is late to the party. The Surface RT is finally out, but Apple has been in the tablet game for two and a half years, and Android partners are not that far behind.

Apple recently launched a 7.9-inch tablet, while Google returned that favor by introducing a 10-incher, hoping to invade Apple’s home turf. However, Microsoft does not think that there is a need for smaller tablet form factors and it plans to keep Surface tablets in the 10+ inch space.

In an interview with Wired, Microsoft exec Tami Reller said the company is currently focusing on 10.1-inch and larger tablets. Reller said Microsoft has no plans to enter the 7-inch tablet market in the current launch timeframe. However, this does not mean Microsoft will not roll out a 7-inch tablet in the future. We can think of at least one company that said it would never build a 7-inch tablet, right before it launched one.

We can’t say we are surprised by Microsoft’s position on 7-inch tablets. With the iPad mini, Nexus 7, along with Amazon and Barns & Noble tablets, it’s a very crowded market and Microsoft is probably better off focusing on bigger tablets with physical keyboards and the enterprise market.

Despite its quite steep price, Microsoft's US $499 Surface RT model has been sold out after only one day of pre-orders. On the other hand US $599 and US $699 models are still available.

Of course, there is no info on how many units Microsoft actually had, but judging by the first day pre-order sale, Microsoft might just do well with its Surface RT tablet. The new date for pre-orders have been changed from October 26th to "within three weeks".

Microsoft's US $599 and US $699 Surface RT models are still up for grabs and both come with overpriced keyboard covers.

The real picture should be clear once these actually start to ship out and once Apple comes out with its own iPad mini that could easily turn the tide.